EU Banks to Face Bigger Backstops for New Bad Loans

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European Union banks will have to set aside more capital against new loans that could turn sour as of Wednesday, when the European Commission will publish a proposal on larger backstops for bad debt, a draft document showed. The European Commission document, seen by Reuters, said the new rules would apply to loans originated from the date of the adoption of the proposal, which is Wednesday, opening them up to potential challenges as banks could face obligations before the new rules take effect, Reuters reported. Banks will have to write down within two years new unsecured loans that turn bad, and secured bad loans within eight, via a gradual but non-linear reduction of their exposure, the document showed. The revised provisioning requirements will not cover the huge amount of bad debt already on bank’s balance sheets. The commission had considered, but dismissed, the option of postponing the date at which new loans would be covered by the proposed stricter measures to when the proposal was approved by EU states and legislators, a process that could take several months. Read more.